McCormick & Co., Inc. :MKC-US: Earnings Analysis: Q1, 2017 By the Numbers : March 30, 2017

McCormick & Co., Inc. reports financial results for the quarter ended February 28, 2017.

We analyze the earnings along side the following peers of McCormick & Co., Inc. – TreeHouse Foods, Inc., Conagra Brands, Inc., PepsiCo, Inc., Pinnacle Foods, Inc., B&G Foods, Inc. and Tyson Foods, Inc. Class A (THS-US, CAG-US, PEP-US, PF-US, BGS-US and TSN-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 1,043.70 million, Net Earnings of USD 93.50 million.
  • Gross margins widened from 39.19% to 39.47% compared to the same period last year, operating (EBITDA) margins now 16.04% from 15.12%.
  • Year-on-year change in operating cash flow of -43.13% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-02-28 2016-11-30 2016-08-31 2016-05-31 2016-02-29
Relevant Numbers (Quarterly)
Revenues (mil) 1043.7 1227 1091 1063.3 1030.2
Revenue Growth (%YOY) 1.31 2.09 2.93 3.83 1.96
Earnings (mil) 93.5 157.4 127.7 93.8 93.4
Earnings Growth (%YOY) 0.11 5.5 30.84 11.27 32.48
Net Margin (%) 8.96 12.83 11.7 8.82 9.07
EPS 0.74 1.24 1 0.73 0.73
Return on Equity (%) 22.2 36.9 28.79 21.44 21.89
Return on Assets (%) 7.97 13.46 10.91 8.3 8.39

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Market Share Versus Profits

Revenues History
Earnings History

MKC-US‘s change in revenue this period compared to the same period last year of 1.31% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that MKC-US is holding onto its market share. Also, for comparison purposes, revenues changed by -14.94% and earnings by -40.60% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 39.19% to 39.47% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 15.12% to 16.04% compared to the same period last year. For comparison, gross margins were 44.01% and EBITDA margins were 20.49% in the last reporting period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

MKC-US‘s change in operating cash flow of -43.13% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 12.56% to 13.33% and (2) one-time items. The company’s pretax margins are now 11.48% compared to 11.29% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

McCormick & Co., Inc. manufactures, markets and distributes spices, seasoning mixes, condiments and other flavorful products to the retail outlets, food manufacturers and foodservice businesses. The company operates its business through the following business segments: Consumer and Industrial. The Consumer business segment operates through the following brands McCormick, Lawry’s, Zatarain’s, Simply Asia, Thai Kitchen, Ducros, Vahine, Schwartz, Club House, Kamis, Kohinoor and DaQiao. The Industrial business segment sells to food manufacturers and the foodservice industry both directly and indirectly through distributors. McCormick was founded by Willoughby M. McCormick in 1889 and is headquartered in Sparks, MD.

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